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Tuesday, October 15, 2013 - 12:00

Moodys Lowers Stockton Calif. Pension Bonds Deeper into Junk Category

Submitted by webadmin on Tue, 2013-10-15 00:00

Moody's Investors Service lowered the pension obligation bonds of Stockton, California, to 'Ca' from 'Caa3' yesterday and changed its outlook on them to “negative” from “developing,” citing how the city would treat the debt in its plan for exiting bankruptcy, Reuters reported yesterday. "For the series 2007 pension obligation bonds, the city is proposing significant losses to bondholders," Moody's said in a statement, noting that it now estimates losses to be in a range of 50 percent to 65 percent of principal from the date the city first defaulted on the debt. "While better than the city's initial proposal of losses of around 80 percent, the projected losses are somewhat greater than had been implied at the former Caa3 rating level," Moody's said, noting the losses would accrue to bond insurer Assured Guaranty rather than to bondholders. Stockton has settled with Assured and bond insurers Ambac and National Public Finance Guarantee Corp. and is trying to reach deals with a handful of remaining creditors to support its plan to adjust its debt and exit from bankruptcy.

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Tuesday, October 15, 2013 - 12:00

Dillon No Plan to Use Detroit Bankruptcy to Slash Pensions

Submitted by webadmin on Tue, 2013-10-15 00:00

Michigan Governor Rick Snyder’s administration was more focused on keeping Detroit from running out of cash than addressing its long-term debt as the state’s largest city inched toward bankruptcy earlier this year, state Treasurer Andy Dillon testified last week, the Detroit News reported on Saturday. Dillon told labor union attorneys in a sworn deposition on Thursday that the Snyder administration was aware of the state constitution’s protection of pensions as a contractual commitment, but wanted to let a bankruptcy judge decide if those contracts apply under federal law. But Dillon denied there was a concerted effort to use chapter 9 bankruptcy to slash an estimated $3.5 billion in debt Detroit owes more than 23,000 retirees with vested pension rights.

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Tuesday, October 15, 2013 - 12:00

DOJ Defends Use of Chapter 9 Bankruptcy in Detroit Case

Submitted by webadmin on Tue, 2013-10-15 00:00

The U.S. Justice Department on Friday defended the constitutionality of chapter 9 bankruptcy after several Detroit creditors challenged the law in a bid to derail the city’s bankruptcy filing, the Detroit Free Press reported on Saturday. The U.S. government filed a memorandum in bankruptcy court rejecting challenges to chapter 9 from several creditors — notably including Michigan Council 25 of AFSCME, Detroit’s largest employee union. The government did not address whether the city of Detroit is eligible for bankruptcy or whether it should be allowed to enact pension cuts, which remains a key point of contention.

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Tuesday, October 15, 2013 - 12:00

Citigroup Violating Securities Law in Jefferson County Bankruptcy Deal Lawsuit Says

Submitted by webadmin on Fri, 2013-10-11 00:00

The Wall Street investment bank leading Jefferson County's pitch to exit chapter 9 municipal bankruptcy could be violating securities law if it serves as an underwriter in the deal, a lawsuit brought by Jefferson County sewer ratepayers says, AL.com reported yesterday. Under the Dodd-Frank Wall Street Reform and Consumer Protection Act, an investment bank may not act as both a financial advisor to a municipal issuer and as an underwriter when that debt goes to market. Serving in both roles could create a conflict of interest for the bank, and the practice was outlawed in 2011. That appears to have been what's happening as part of Jefferson County's plan to exit bankruptcy. "The reason for the rule is simple," plaintiff lawyers wrote. "The MSRB and the SEC regard it as a conflict for a municipal dealer to gain the trust and confidence of an issuer through advisory relationship and then switch to an underwriting relationship where the financial rewards are potentially far greater," the lawsuit said. In July, the Jefferson County Commission hired Citigroup Global Markets, Inc. to lead its team when the county returns to the market to sell new warrants. If the county's plan is approved by the court, those warrants would refinance the remaining debt not conceded by the county's creditors. However, Citigroup has worked closely with Jefferson County since at least 2008 to find a solution to its financial problems.

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Investment Banking

Friday, October 11, 2013 - 12:00

Former Detroit Mayor Sentenced to 28 Years in Corruption Case

Submitted by webadmin on Fri, 2013-10-11 00:00

Former Detroit Mayor Kwame M. Kilpatrick stood before a federal judge yesterday and apologized for putting the people of his city through a corruption scandal so vast that prosecutors say it helped accelerate Detroit’s march toward bankruptcy, the New York Times reported yesterday. “They’re hurting,” Kilpatrick said. “A great deal of that hurt I accept full responsibility for.” They were solemn words from the formerly boisterous figure, who many believed would lead Detroit out of its long economic downturn. Then, declaring an end to the bribery and thieving that marked the Kilpatrick administration, U.S. District Court Judge Nancy G. Edmunds imposed the sentence prosecutors had sought: 28 years in prison. Kilpatrick was convicted in March of two dozen counts that included charges of racketeering and extortion, adding his name to a list of at least 18 city officials who have been convicted of corruption during his tenure. For Detroiters, Kilpatrick’s meteoric fall — from potential savior of a struggling city to prison-bound symbol of financial mismanagement — may be the closest they will get to holding past leaders accountable for decades of disappointment and poor fiscal decisions. “He’s become the poster child of what went wrong with the city and why it went bankrupt,” said Adolph Mongo, a political consultant who worked for Mr. Kilpatrick’s re-election campaign. But it was unfair to pin the city’s problems on any single elected leader, he said. “It was a house of cards,” added Mongo about Detroit’s fiscal health. “Kilpatrick was the last card. He fell, and it knocked everything down.”

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Friday, October 11, 2013 - 12:00

ABI Bankruptcy Brief Is Detroits Bankruptcy a Bid to Bust Unions

Submitted by webadmin on Thu, 2013-10-10 00:00

ABI Bankruptcy Brief | October 10, 2013

October 10, 2013

NEWS AND ANALYSIS

COMMENTARY: IS DETROIT’S BANKRUPTCY A BID TO BUST UNIONS?

While Detroit’s bankruptcy has often been portrayed as “a cautionary tale about what can happen when a once great American city is run into the ground by poor leadership and pensions run amok,” Paul Alexander, a former Time reporter who now blogs for the Huffington Post suggests in a commentary that it is “yet another battle between Republicans and public employee unions.” Alexander bases his analysis on the close political ties between Michigan Gov. Rick Snyder and conservative donors, including the DeVos family and the Koch brothers, who strongly supported the state’s right-to-work legislation pushed through by Snyder last December. That effort prompted AFL-CIO president Richard Trumka to label Gov. Snyder a "puppet of extreme donors" whose actions "will diminish the voice of every working man and woman in Michigan." According to Alexander, critics contend Snyder believes that police, fire, and city retirees are “unsecured creditors, like bondholders, under U.S. bankruptcy law and aren't exempt from potential cuts.” Those 20,000 retired workers are owed $3.5 billion in pensions and $5.7 billion in health coverage, a significant portion of Detroit’s estimated $18 billion debt. Should they be forced, through bankruptcy, to surrender up to 90 percent of that money, as some union leaders estimate, it would represent, “a devastating blow to organized labor not just in Detroit but across the state and country,” according to Alexander. On September 19, Bankruptcy Judge Steven Rhodes, who is overseeing Detroit’s chapter 9 case, heard 45 of 109 individuals who filed papers to be allowed to speak to the court and explain why the bankruptcy should not be allowed to proceed. After listening to the testimony, which Judge Rhodes characterized as “extraordinary,” he was so moved, Alexander writes, that “he ordered Orr and Governor Snyder, who were not present in court, to listen to a recording of the hearing. ‘I think,’ Rhodes said from the bench, ‘democracy demands nothing less than they personally listen to what the citizens of this city said in this court today.’ ” Click here to read the full commentary.

GAO TO DECIDE QUESTION OF “TOO BIG TO FAIL”

Big banks argue that government subsidies, such as those that limited the meltdown of large financial institutions during fall of 2008 and early 2009, have been curtailed or even eliminated by the Dodd-Frank financial reform act passed in 2010. Now, according to Simon Johnson, writing on the New York Times Economix blog, a forthcoming assessment by the General Accounting Office will pass official judgment on the question. But Johnson suggests that the GAO would do well to look past the opinions of such insider banking groups as the Clearing House Association, and more toward independent researchers; both groups were represented at a conference on “too big to fail” banks last week at New York University. Johnson cites one of the independent papers, which concluded that “large institutions could borrow more cheaply from private lenders, presumably because the implicit government guarantee lowered the credit risk for those firms relative to their smaller competitors. They also find that ‘passage of Dodd-Frank did not eliminate expectations of government support’ — meaning this advantage in credit markets persists in the data.” Another paper found that, “at the peak of the crisis, the risk that the financial sector would collapse as a whole was substantially underpriced relative to the risk of failure of individual financial firms. This may sound technical but it is actually quite profound; it means the markets expected a rescue of some form at the systemwide level.” Johnson concedes that the GAO report could still support the banks’ contention that government subsidies have been eliminated, but includes a cautionary note in the form of an Upton Sinclair quotation: “It is difficult to get a man to understand something when his salary depends upon his not understanding it.” Read more.

PETTERS FALLOUT ENGULFS TWO POWERHOUSE LAW FIRMS

Bankruptcy Judge Paul G. Hyman, Jr. (S.D.Fl.) has green-lighted a massive Ponzi scheme lawsuit against one of the biggest law firms in the United States, Fulbright & Jaworski, according to an article in yesterday’s South Florida Business Journal. The ruling opens the way for a $718 million malpractice suit by Palm Beach Finance, which claims that Fulbright failed to advise them to file for bankruptcy following the explosion of the Tom Petters Ponzi scheme. The judge may also block Fulbright from recovering the fees it tried to charge Palm Beach Finance, which was heavily tied to Petters’ business. After Petters’ fraud was exposed in October 2008, Palm Beach delayed filing for bankruptcy for more than a year, at which time it had amassed debts of $1 billion. According to the South Florida Business Journal, two Miami powerhouse bankruptcy firms are involved. Michael Budwick of Meland Russin & Budwick represents the fund receiver Barry Mukamal; Scott Baena of Bilzin Sumberg represents Fulbright. Petters, meanwhile, is serving 50 years in prison for running the third-largest Ponzi scheme in the nation. Read more. (Subscription required.)

GOVERNMENT SHUTDOWN DELAYS MEDICAL SUPPLIER’S BANKRUPTCY EXIT

As Congress and the White House fitfully discuss ways to avert the country’s debt crisis and end the stalemate that has shuttered the government for more than a week, the shutdown has been blamed for the disruption of a California bankruptcy case. Lawyers for the Centers for Medicare and Medicaid Services persuaded Bankruptcy Judge Mark Wallace on Monday to delay a court hearing that could have allowed a California medical supplier, American Medical Technologies, to get out of chapter 11 protection. In papers filed with the U.S. Bankruptcy Court in Santa Ana, Calif., U.S. Department of Justice attorney Seth Shapiro said that CMS employees, furloughed by the government shutdown, are prohibited from working, and thus can’t evaluate AMT’s plan to repay the $76 million that the agency says it’s owed. “It’s not [AMT’s] fault if the government can’t keep its house in order,” said Scotta McFarland, AMT’s attorney, during Monday’s hearing after pointing out that Justice Department attorneys have the power to ask for special permission to keep working on cases. Judge Wallace, who reset the company’s bankruptcy-exit hearing to Nov. 20 from Oct. 21, hinted that he wouldn’t clear the company to leave chapter 11 unless its biggest debts are worked out in a repayment plan. Under AMT’s restructuring plan, the company’s founder and president, Gerald Del Signore, agreed to contribute several million dollars to help the company pay off its debts. Medicare payments make up more than 90 percent of AMT’s revenue. The company filed for chapter 11 protection in February 2012 amid a dispute with a Medicare-payment contractor, which halted payments to AMT during an investigation into whether the company improperly billed for extra wound care supplies. Click here to read the full article. Read more.

NEW FISCAL SURVEY FINDS NATION’S CITIES STRUGGLING, BUT SURVIVING

Pressure from soaring health care and pension costs, coupled with cuts in state and federal aid, are undermining the improving but still shaky financial health of the nation’s cities, according to a report released today, the Washington Post reported. The National League of Cities, which advocates on behalf of 1,700 member cities, said that its annual survey of local finance officers reflects a slowly brightening financial picture for many cities. Still, the survey found that cities continue to suffer the effects of the recent economic downturn, as well as structural problems, that are making it difficult for them to pay for core services such as public safety. The survey found that after six straight years of decline, cities this year reported a small increase in general fund revenues — the locally generated taxes, fees and outside aid that local officials have wide discretion to spend on services from public safety to parks. Sales and income tax revenues are up, but property taxes continue to decline because they typically reflect property values as much as several years before their collections. For cities, that means that their tax revenues are still depressed by the steep drop in property values that accompanied the downturn. Despite the problems, the report finds that few cities are facing the extreme pressure that since 2011 has caused Jefferson County, Ala., Stockton and San Bernardino, Calif., and Detroit to topple into bankruptcy. Overall, nearly three in four of the 350 city finance officers surveyed reported that their cities are better able to meet financial needs in 2013 than they were in 2012. But many also reported that they have been forced to squeeze jobs out of the budget, reduce health care and pension benefits and raise fees, and sometimes taxes, to make ends meet. Read more.

ABI LAUNCHES SIXTH ANNUAL WRITING COMPETITION FOR LAW STUDENTS

Law school students are invited to submit a paper between now and March 4, 2014 for ABI's Sixth Annual Bankruptcy Law Student Writing Competition. ABI will extend a complimentary one-year membership to all students who participate in this year's competition. Eligible submissions should focus on current issues regarding bankruptcy jurisdiction, bankruptcy litigation, or evidence issues in bankruptcy cases or proceedings. The first-place winner, sponsored by Invotex Group, Inc., will receive a cash prize of $2,000 and publication of his or her paper in the ABI Journal. The second-place winner, sponsored by Jenner & Block LLP, will receive a cash prize of $1,250 and publication of his or her paper in an ABI committee newsletter. The third-place winner, sponsored by Thompson & Knight LLP, will receive a cash prize of $750 plus publication of his or her paper in an ABI committee newsletter. For competition participation and submission guidelines, please visit http://papers.abi.org.

FIRST ABIWORKSHOP PROGRAM LOOKS AT RISKY TIMES FOR SECURED LENDERS AND SERVICERS! ATTEND IN PERSON OR VIA LIVE WEBSTREAM

You will not want to miss the abiWorkshops series' inaugural program, "Risky Times for Secured Lenders and Servicers." The program is cosponsored by TMA (Chesapeake), IWIRC (D.C./Greater Maryland) and RMA (Potomac), and will be held on Nov. 6 from 9 a.m. to 3 p.m. ET in the ABI Headquarters Conference Center in Alexandria, Va. The abiWorkshops series provides attendees two great ways of participating: You can register to attend in person at the ABI Conference Center, or you can participate via a live webstream! Topics that will be covered on the Nov. 6 program include:

- Living with the New CFPB Mortgage Servicing Rules
- Business Lending: Navigating What Lies Ahead
- Business Lending: Recent Legal Developments

For more information or to register for the "Risky Times for Secured Lenders and Servicers" abiWorkshop on Nov. 6, please click here.

EXPERTS TO EXAMINE STUDENT LENDING AND BANKRUPTCY AT ABI WORKSHOP PROGRAM ON NOV. 15

Experts will tackle the hot topic of student lending issues in bankruptcy on the abiWorkshops series' new program, "You Can't Discharge Student Loans in Bankruptcy - Or Can You?" The program will be held on Nov. 15 from 9 a.m. to 3 p.m. ET in the ABI Headquarters Conference Center in Alexandria, Va. The abiWorkshops series provides attendees two great ways of participating: You can register to attend in person at the ABI Conference Center, or you can participate via a live webstream! Topics that will be covered on the Nov. 15 program include:

- Student Lending Today: Who Borrows, How Much, Delinquency & Default Trends
- Repayment Options: Income Based Repayment and New Lender/Servicer Programs
- Litigation under Sect. 523(a)(8): What Proofs Are Needed? Evidence Demonstration

For more information or to register for the "You Can't Discharge Student Loans in Bankruptcy - Or Can You?" abiWorkshop on Nov. 15, please click here.

ABI GOLF TOUR UNDERWAY; LAST STOP FOR 2013 IS WINTER LEADERSHIP CONFERENCE IN DECEMBER

The 7th and final stop for the 2013 ABI Golf Tour is on Dec. 5 at the Trump National Golf Club, held in conjunction with ABI’s Winter Leadership Conference. Final scoring to win the Great American Cup — sponsored by Great American Group — is based on your top three scores from the seven ABI events. See the Tour page for details and course descriptions. The ABI Golf Tour combines networking with fun competition, as golfers "play their own ball." Including your handicap means everyone has an equal chance to compete for the glory of being crowned ABI's top golfer of 2013! A 22-handicapper won the tour event at July’s Southeast Bankruptcy Workshop. There's no charge to register or participate in the Tour.

ABI IN-DEPTH

NEW CASE SUMMARY ON VOLO: ONYEABOR V. CENTENNIAL POINT OWNERS ASSOCIATION (IN RE ONYEABOR) (10TH CIR.)

Summarized by Steven T. Mulligan of Bieging Shapiro & Barber LLP

he circuit court ruled that conversion is appropriate where a plan makes no provision for repayment of pre-petition secured claims, where the debtor’s income is insufficient to support her plan or even the appellees’ judgment lien, and where the debtor fails to address the trustee’s objections.

There are more than 1,000 appellate opinions summarized on Volo, and summaries typically appear within 24 hours of the ruling. Click here regularly to view the latest case summaries on ABI’s Volo website.

NEW ON ABI’S BANKRUPTCY BLOG EXCHANGE: FIFTH CIRCUIT NIXES CONSENT IN STERN CASES

The Bankruptcy Blog Exchange is a free ABI service that tracks more than 80 bankruptcy-related blogs. A recent blog post argues that while the CFTC is on hiatus during the shutdown, the industry should consider the damage that might be done to a market that has become an integral part of banking.

Be sure to check the site several times each day; any time a contributing blog posts a new story, a link to the story will appear on the top. If you have a blog that deals with bankruptcy, or know of a good blog that should be part of the Bankruptcy Exchange, please contact the ABI Web team.

ABI Quick Poll

Does the bankruptcy court's Section 105 power enable it to surcharge the debtor's exempt property?

Click here to vote on this week's Quick Poll. Click here to view the results of previous Quick Polls.

INSOL INTERNATIONAL

INSOL International is a worldwide federation of national associations for accountants and lawyers who specialize in turnaround and insolvency. There are currently 43 member associations worldwide with more than 9,000 professionals participating as members of INSOL International. As a member association of INSOL, ABI's members receive a discounted subscription rate. See ABI's enrollment page for details.

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FRIDAY:

COMING UP

CALENDAR OF EVENTS

2013

October
- Professional Development Program
    Oct. 11, 2013 | New York, N.Y.
- Chicago Consumer Bankruptcy Conference
    Oct. 14, 2013 | Chicago, Ill.
- International Insolvency & Restructuring Symposium
    Oct. 25, 2013 | Berlin, Germany

November
- abiWorkshop: "Risky Times for Secured Lenders and Servicers"
   Nov. 6, 2013 | Alexandria, Va.
- Complex Financial Restructuring Program
   Nov. 7, 2013 | Philadelphia, Pa.
- Corporate Restructuring Competition
   Nov. 7-8, 2013 | Philadelphia, Pa.
- Austin Advanced Consumer Bankruptcy Practice Institute
   Nov. 10-12, 2013 | Austin, Texas
- Detroit Consumer Bankruptcy Conference
   Nov. 11, 2013 | Detroit, Mich.

-abiWorkshop: "You Can't Discharge Student Loans in Bankruptcy - Or Can You?"
Nov. 15, 2013 | Alexandria, Va.
- Delaware Views from the Bench
Nov. 25, 2013 | Wilmington, Del.

December
- Winter Leadership Conference
Dec. 5-7, 2013 | Rancho Palos Verdes, Calif.
- ABI/St. John’s Bankruptcy Mediation Training
Dec. 8-12, 2013 | New York

January
- Western Consumer Bankruptcy Conference
Jan. 20, 2014 | Las Vegas, Nev.
- Rocky Mountain Bankruptcy Conference
Jan. 23-24, 2014 | Denver, Colo.

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Thursday, October 10, 2013 - 12:00

Mich. Governor Testifies about Detroit Bankruptcy

Submitted by webadmin on Thu, 2013-10-10 00:00

Michigan Gov. Rick Snyder testified behind closed doors yesterday about his role taking Detroit into bankruptcy, giving a rare interview with lawyers for creditors who pressed him about retiree pensions and asked whether the city could have done more to avoid the historic filing, ABC News reported yesterday. Snyder waived executive privilege and gave a three-hour deposition at his office in Lansing. The testimony can be used as evidence in an upcoming trial that will determine whether Detroit is eligible to shed or restructure at least $18 billion in debt in bankruptcy court. The "Chapter 9 filing was a difficult but necessary decision, one that clearly was the last and only viable option to resolve the city's fiscal crisis and restore the greatness of this proud city," the governor said. After the deposition, union attorney Sharon Levine complimented Snyder for stepping forward but told reporters that he wasn't always forthcoming, adding that there doesn't seem to be a solution for Detroit retirees who could lose pension benefits. Last month, the attorney general's office tried to keep Snyder on the sideline by invoking executive privilege, a common defense. But that didn't seem to sit well with U.S. Bankruptcy Judge Steven Rhodes, so lawyers for the governor said he would agree to be interviewed.

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Govt. Claims/Sovereign Immunity

Thursday, October 10, 2013 - 12:00

Puerto Rico at Brink of Bankruptcy May Get U.S. Economic Boost

Submitted by webadmin on Thu, 2013-10-10 00:00

Federal officials are expected to announce incentives to boost Puerto Rico's economy in the next few months, a top legislator from the commonwealth said this week, responding to investor concerns about the island's rising debt costs and bleak growth, Reuters reported yesterday. The help is unlikely to include direct financial aid, Puerto Rico Senate President Eduardo Bhatia said at an investor gathering in New York. The assistance would come in response to the last four years of recession in the Caribbean territory, Bhatia said. It has been given added urgency due to a spike in Puerto Rico's debt yields in the recent months, he said. The selloff in Puerto Rico's bonds has been driven by worries about the territory's shrinking economy, its high jobless rate and its per capita debt. The U.S. commonwealth's unemployment rate is nearly 14 percent, higher than any U.S. state. Puerto Rico has about $70 billion of outstanding debt, or nearly 2 percent of the overall $3.7 trillion municipal bond market. That dwarfs the $18 billion held by Detroit. Puerto Rico's debt is held widely by mutual funds, increasing the systemic risk. The island will not be entitled to file for chapter 9 municipal bankruptcy.

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Puerto Rico

Thursday, October 10, 2013 - 12:00

Former Detroit Mayor to Be Sentenced Today for Corruption

Submitted by webadmin on Thu, 2013-10-10 00:00

A former Detroit mayor will be sentenced today for orchestrating wide-ranging corruption that prosecutors say contributed to the city's financial collapse, the Wall Street Journal reported yesterday. Kwame Kilpatrick "is not the main culprit of the city's historic bankruptcy," federal prosecutors wrote in court papers earlier this month, "but his corrupt administration exacerbated the crisis." A federal jury convicted Kilpatrick in March for his connection to extortion, bribery and fraud that prosecutors say hobbled the cash-poor city. He will be sentenced today before U.S. District Judge Nancy Edmunds. Prosecutors are seeking at least 28 years in prison, which would be one of the harshest sentences for a political-corruption case in recent years. The role of public corruption in Detroit's fiscal downfall has been hotly debated since the city said it had $18 billion in long-term liabilities and little way to pay them off. Many city officials blame the financial misfortune on a rapid population decline, cuts in state aid and a sharp drop in tax revenue. Experts say it is rare that criminal wrongdoing by officeholders can be seen as principally responsible for a municipality filing for Chapter 9 bankruptcy protection. "I don't think what happened during the Kilpatrick administration is what led us into bankruptcy. But it most definitely added to the position we were in," said Mayor Dave Bing.

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